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CHAPTER 11 CURRENT LIABILITIES CLASS DISCUSSION QUESTIONS 1. To match revenues and expenses properly, the liability to cover product warranties should be recorded in the period during which the sale of the product is made. 2. When the defective product is repaired, the repair costs would be recorded by debiting Product Warranty Payable and crediting Cash, Supplies, or another appropriate ac- count. 3. Yes. Since the $5,000 is payable within one year, Company A should present it as a current liability at September 30. 4. a. Income or withholding taxes, social se- curity, and Medicare b. Employees Income Tax Payable, So- cial Security Tax Payable, and Medi- care Tax Payable 5. There is a ceiling on (a) the social security portion of the FICA tax and (d) federal un- employment compensation tax. 6. The deductions from employee earnings are for amounts owed (liabilities) to others for such items as federal taxes, state and local income taxes, and contributions to pension plans. 7. Yes. Unemployment compensation taxes are paid by the employer on the first $7,000 of annual earnings for each em- ployee. Therefore, hiring two employees, each earning $12,500 per year, would re- quire the payment of twice the unemploy- ment tax than if only one employee, earn- ing $25,000, was hired. 8. 1. c 2. c 3. a 4. b 5. b 9. The use of special payroll checks relieves the treasurer or other executives of the task of signing a large number of regular checks each payday. Another advantage of this system is that reconciling the regular bank statement is simplified. The paid payroll checks are returned by the bank separately from regular checks and are accompanied by a statement of the special bank account. Any balance shown on the bank's statement will correspond to the sum of the payroll checks outstanding because the amount of each deposit is exactly the same as the total amount of checks drawn. 10. a. Input data that remain relatively un- changed from period to period (and therefore do not need to be reintro- duced into the system frequently) are called constants . b. Input data that differ from period to period are called variables . 11. a. If employees’ attendance records are kept and their preparation supervised in such a manner as to prevent errors and abuses, then one can be assured that wages paid are based on hours actually worked. The use of “In” and “Out” cards, whereby employees indic- ate by punching a time clock their time of arrival and departure, is especially useful. Employee identification cards or badges can be very helpful in giving additional assurance. b. The requirement that the addition of names on the payroll be supported by written authorizations from the Person- nel Department can help ensure that payroll checks are not being issued to fictitious persons. Endorsements on payroll checks can be compared with other samples of employees' signa- tures.
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